Congress should amend ERISA to close the loophole that denies patients, who are injured by the negligent actions and decisions of ERISA-regulated managed care organizations (MCOs), the right to hold these plans accountable for their actions. The "Access to Quality Care Act of 1999" (AQCA), introduced by Representative Charlie Norwood (H.R. 216), and the "Patients' Bill of Rights Act" (PBOR), introduced by Senator Thomas Daschle and Representative John Dingell (S.6/H.R.358), propose a narrow amendment to end this loophole.

The Loophole.

Congress enacted ERISA to protect the interests of employees and their dependents with regard to their pension and health plans. Upon passage in 1974, ERISA was described as the employees’ "emancipation proclamation," intended to protect employees from potential abuses by their benefits plans. However, with the evolution of the health care system from a fee-for-service to a managed care system, ERISA has evolved into a shield of immunity that protects MCOs from potential liability for their negligent denial of health benefits, denying employees adequate recourse for their injuries caused by such MCO negligence.

Today, MCOs act as providers of care, making decisions that can harm patients. When Congress enacted ERISA, health plans did not act as providers of care. Health care was delivered under a fee-for-service system. Patients received care from local providers, often in small or solo practices, and their insurance companies retrospectively reviewed and paid for services. If the plan refused to pay for treatment, a patient could bring an action to recover the cost of the treatment, but because treatment was not denied, the patient's health was not endangered. Since 1974, however, MCOs have experienced explosive growth, now covering the majority of privately insured patients. Unlike fee-for-service plans, MCOs use various cost containment techniques to prospectively review care, typically delivering services through complex corporate structures. MCOs are not just payors of care, rather they are also providers of care. They directly impact patient care through policies, procedures, and cost containment strategies.

Today, when a plan prospectively refuses to pay for treatment, a patient can suffer serious injury or death.

• Unintended Consequence: The loophole creates an unlevel playing field by depriving patients enrolled in ERISA plans the right to obtain remedies for injuries caused by MCO negligence. Patients who are injured by MCO negligence and are not enrolled in ERISA-regulated MCOs may have their claims heard under state law. They are afforded a remedy when a court determines that MCO decision-making caused their injury. Patients enrolled in ERISA-regulated MCOs have no such right of recourse, because ERISA preempts their state causes of action. ERISA enrollees can only recover the value of the benefit denied, an obviously inadequate remedy for patients who have been seriously injured or have died due to negligence on the part of MCOs.

• Unintended Consequence: The loophole allows ERISA-regulated MCOs to avoid accountability for their negligence, removing an important incentive to provide high quality health care. State negligence laws serve not only to compensate patients who have been injured by negligent actions, but also to act as a deterrent against negligent behavior. Health care providers who know that they will be held accountable for their actions are more likely to act prudently and carefully to prevent harm. Because ERISA-regulated MCOs are shielded from liability, they lack an important incentive to monitor or change their actions to minimize negligent decision-making.

• Unintended Consequence: The loophole wastes scarce judicial resources as courts are forced to wrestle with the appropriate scope of the ERISA preemption, instead of focusing on the merits of patients' state law claims. ERISA's preemption has forced injured patients, MCOs, and state and federal courts to waste countless resources in a struggle to determine the exact scope of preemption. Cases are bounced between state and federal courts, as they are forced to examine the specific allegations in each case, not in an attempt to determine whether the claims are meritorious, but rather to determine whether they fall within the broad scope of the ERISA preemption.

Section 302 of ACQA and Section 302 of PBOR provide that ERISA is not intended to preempt state actions against MCOs for personal injury or wrongful death. The ERISA preemption would be amended only for the narrow purpose of affording patients enrolled in ERISA-regulated MCOs the ability to seek redress under state law for injuries caused by negligent MCO actions. The amendment is good health policy for important reasons:

• Employers governed by ERISA will not be held liable for the negligence of MCOs. In fact, to make very clear that employers will not be held liable, Congressman Norwood has included an exception, which specifies that employers will not be held liable, unless they make health care decisions that directly result in injury to a patient. This same exception is in PBOR, the Daschle/Dingell bill.

Employers make a number of decisions regarding the health plans that their employees receive, such as which health plan to purchase or what information to disclose to their employees about their health benefits. Employers could not be held accountable for these sorts of decisions. Employers could be held accountable only for those health care decisions made directly by the employer and regarding the provision of covered benefits which directly result in injury to a patient.

• The health plan accountability provision would not prohibit a patient from bringing a malpractice action against a health care professional or other provider of care who may have acted negligently. The provision does not substitute MCO liability for provider liability. Rather, the provision would reflect the reality in the health care system today that MCOs make decisions that impact patient care and should be held responsible for negligent decisions, just as providers of care are held responsible for negligent care.

• The health plan accountability provision will be of negligible cost to employers. In a July 16, 1998 analysis, the Congressional Budget Office estimated that the average national premium impact of closing the ERISA loophole would be 1.2 percent for employer-sponsored ERISA plans. In return for this minimal premium increase, the provision would ensure that employers contract with MCOs that provide high quality benefits for their employees.

Courts cannot fix the ERISA loophole and, frustrated with their inability to afford justice to injured ERISA MCO enrollees, are calling on Congress to act. Although a few federal and state courts have attempted to provide redress for injured patients covered by ERISA, neither the federal circuit courts nor the U.S. Supreme Court has affirmed or adopted the holdings of these rulings.

Federal courts across the country are asking Congress to close the ERISA loophole. In a Louisiana case, a utilization reviewer for an ERISA-regulated MCO decided that Florence Corcoran, who was experiencing a high-risk pregnancy, did not require hospitalization, as her doctor had recommended. The plan instead authorized a part-time visiting nurse. While the nurse was off duty, the fetus went into distress and died. In their wrongful death action, Mrs. Corcoran and her husband alleged that the MCO’s decision had caused the death of her unborn child. The Court of Appeals for the Fifth Circuit ruled, in a decision troubling to the court, that the Corcorans could not bring their action under state law due to ERISA preemption. The court made this determination despite its recognition that the MCO had made a medical decision:

Courts also have noted that disputes cannot necessarily be resolved in advance even with a strong appeals process or an action in court to compel coverage. Therefore, legal accountability is needed. Troy Benoit sustained serious neck and spinal injuries resulting from a motorcycle accident. Aetna, Mr. Benoit’s health insurer, initially refused to certify the urgently needed surgery that the hospital physicians recommended, which was then canceled. Eventually, Aetna certified and paid for the procedure, but Mr. Benoit was left paralyzed. In his personal injury action, Mr. Benoit alleged that Aetna’s delay in certifying his surgery contributed to his paralysis and significantly decreased his chances of walking again. The Louisiana federal district court reluctantly found that Mr. Benoit’s claims were preempted by ERISA:

The ERISA loophole is a significant problem for patients suffering from mental health conditions. Richard Clarke suffered from alcoholism and drug abuse. Despite being entitled to thirty days of inpatient rehabilitation treatment, Mr. Clarke's ERISA-regulated MCO refused to authorize such treatment. Instead, Mr. Clarke was passed from hospital to hospital during the course of seven months, sometimes being admitted for alcohol detoxification and sometimes admitting himself. At each instance of hospitalization, the MCO permitted some days of hospitalization but denied Mr. Clarke access to his rehabilitation benefit. Within 24 hours of one hospital discharge, Mr. Clarke nearly succeeded in a suicide attempt. At this point, a Massachusetts court ordered Mr. Clarke to be committed to a thirty-day rehabilitation program, requesting the MCO to admit him to a hospital. Incredibly, the MCO refused any treatment. Within two months, Mr. Clarke committed suicide. The Massachusetts federal district court threw out the state law claims of his wife, Mrs. Andrews-Clarke, against the MCO due to the ERISA preemption, and in exasperation, determined that she had no remedy against the alleged negligence of the MCO:

State courts and legislatures have taken significant steps to ensure that their citizens, who are patients enrolled in MCOs, can bring actions for MCO negligence. State action, however, will not help the more than 125 million persons enrolled in ERISA-regulated MCOs, because ERISA preempts state law.

• States are recognizing that MCOs make medical decisions and should be held accountable for their actions. Both Texas and Missouri have enacted laws expressly allowing patients to sue MCOs for negligent treatment decisions.

• California has recognized through case law that a patient may bring a negligence claim against an MCO, and has determined that MCOs should be held accountable for negligently designed or negligently implemented cost containment strategies. Wickline v. State, 228 Cal. Rptr. 661 (Cal. Ct. App. 1986); Wilson v. Blue Cross, 271 Cal. Rptr. 876 (Cal. Ct. App. 1990).